HMRC internal manual

Corporate Finance Manual

New UK GAAP: FRS 102: measurement of other financial instruments: measurement

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For those entities applying FRS 102 with an accounting period beginning on or after 1 January 2015.

Initial recognition

On initial recognition a non- basic (or ‘other’) financial asset or financial liability is measured at its fair value which is normally the transaction price (including transaction costs except in the initial measurement of financial assets and liabilities that are measured at fair value through profit or loss). If payment for an asset is deferred beyond normal business terms or is financed at a rate of interest that is not a market rate, the entity shall initially measure the asset at the present value of the future payments discounted at a market rate of interest for a similar debt instrument.

Subsequent measurement

Financial instruments within the scope of Section 12 are subsequently measured at fair value with changes in fair value recognised in profit or loss. There are three exceptions:

  • Investments in equity instruments that are not publicly traded and whose fair value cannot otherwise be measured reliably and contracts linked to such instruments that, if exercised, will result in delivery of such instruments, shall be measured at cost less impairment; and
  • Where instruments are in designated hedging relationship then they are accounted for in line with the specific hedging rules set out in Section 12.
  • Instruments that are not permitted to be measured at fair value due to Company or LLP Regulations. In these circumstances amortised cost is used.